December 3, 2022

Does Article 12 apply to Corporation?

The Corporations acting as instrumentality or agency of government would obviously be subject to the same limitations in the field of constitutional and administrative law as Government itself, though in the eve of the law, they would be distinct and independent legal entities.

The wide horizons and dimensions of the definition of the word “State” for the purposes of Article 12 of the Constitution embraces the ‘Corporation’ is no longer in dispute after authoritative decisions of the Apex Court in,

  • Ramama Dayarani Setty v. International Airport Authority 1979
  • Som Prakash v. Union of India 1981
  • Ajay Hassia v. Khalid Mujih 1981.

Article 12

Article 12 of the Constitution of India reads as under:

12. Definition. — In this Part, unless the context otherwise requires, “the State” includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the Control of the Government of India.

Ramana Dayarani Setty v. I.A. Authority

The supreme court said about the concept of corporation, in the case of Ramana Dayarani Setty v. I.A. Authority (1979),

“… So far as India is concerned, the genesis of the emergence of corporations as instrumentalities or agencies of Government is to be found in the Government of India Resolution on Industrial policy dated 6th April, 1948. where it was stated inter alia that management of State enterprise will as a rule be through the medium of public corporation under the statutory control of the Central Government who will assume such powers as may be necessary to ensure this.

It was in pursuance of the policy envisaged in this and subsequent resolutions on Industrial Policy that corporations were created by Government for setting up and management of public enterprises and carrying exit other public functions. Ordinarily these functions could have been carried out by Government departmentally through its service personnel, but the instrumentality or agency of the Corporations was resorted to in these cases having regard to the nature of the task to be performed.

The Corporations acting as instrumentality or agency of government would obviously be subject to the same limitations in the field of constitutional and administrative law as Government itself, though in the eve of the law, they would be distinct and independent legal entities. If Government acting through its officers is subject to certain constitutional and public law limitations, it must follow a fortiori that the Government acting through the instrumentality or agency of Corporations should equally be subject to the same limitations.”

Som Prakash v. Union of India 1981

The criteria in finding out, whether the Corporation was instrumentality or agency of the State was reiterated again in the case of the Som Prakash(supra), by the Supreme Court, where the question was about the Bharat Petroleum Corporation. What precisely the Apex Court in Som Prakash’s case (supra) observed, is as under:

“… Constitutional law is not a game of hide and seek but practical real-life conclusions. So viewed, we are constrained to hold that Burmahshell, a Government company though, is but the alter ego of the Central Government and must, therefore, be treated as definitionally caught in the net of ‘State’ since a juristic veil worn for certain legal purposes cannot obliterate the true character of the entity for the purposes of Constitutional law.

 Let us cull out from Airport Authority (supra) the indicia of ‘other authorities … under the control of the Government of India’ bringing a corporation within the definition of the ‘State’. The following factors have been emphasized in that ruling as telling, though not clinching. These characteristics convert a statutory corporation, a Government company, a co-operative society and other registered society or body into a State and they are not confined to statutory corporations alone.

We may decoct the tests for ready reference-

1. One thing is clear that if the entire share capital of the corporation is held by Government, it would go a long way towards indicating that the Corporation is an instrumentality or agency of Government.

2. Existence of deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality.

3. It may also be a relevant factor… whether the Corporation enjoys monopoly status which is the State conferred or State protected.

4. If the functions of the Corporation are of public importance and closely related to governmental functions, it would be relevant factor in classifying the Corporation as an instrumentality or agency of Government.

5. Specifically, if a department of Government is transferred to a Corporation, it would be a strong factor supportive of this inference of the Corporation being an instrumentality or agency of Government.

The finale is reached when the cumulative effect of all the relevant factors above set out is assessed and once the body is found to be an instrument or agency of Government, the further conclusion emerges that it is ‘State’ and is subject to the same constitutional limitations as Government.

Imagine the possible result of holding that a Government company being just an entity created under a statute, not by a statute, it is not ‘State’. Having regard to the directive in Article 38 and the amplitude of the other articles in Part IV Government may appropriately embark upon almost any activity which in a non-socialist republic may fall within the private sector.

Any person’s employment, entertainment, travel, rest and leisure, hospital facility and funeral service may be controlled by the State. And if all these enterprises are executed through Government companies, bureaus, societies, councils, institutes and homes, the citizen may forfeit his fundamental freedoms vis-a-vis these strange beings which are Government in fact but corporate in form.

If only fundamental rights were forbidden access to corporations, companies bureaus, institutes, councils and kindred bodies which act as agencies of the Administration, there may be a breakdown of rule of law and the constitutional order in a larger sector of Governmental activity carried on under the guise of’ jural persons. It may pave the way for a new tyranny by arbitrary administrators operated from behind by Government but unaccountable to Part III of the Constitution.

We cannot assent to an interpretation which leads to such a disastrous conclusion unless the language of Art-12 offers no other alternative. It is well known that ‘Corporation have neither bodies to be kicked, nor souls to be damned’ and Government corporations are mammoth organisations. If Part III of the Constitution is halted at the gates of corporations, Justice Louis D. Brandeiss’ observation will be proved true:

‘The main objection to the very large corporation is that it makes possible and in many cases makes inevitable the exercise of industrial absolutisms. It is dangerous to exonerate corporations from the need to have constitutional conscience: and so, that interpretation, language permitting, which makes governmental agencies, whatever their mien, amenable to constitutional limitations must be adopted by the Court as against the alternative of permitting them to flourish as an imperium in imperio.’

 The common sense signification of the expression “other authorities under the control of the Government of India” is plain and there is no reason to make exclusions on sophisticated grounds such as that the legal person must be a statutory, corporation, must have power to make laws must be created by and not under a statute and so on.”

Ajay Hassia v. Khalid Mujih 1981

Ajay Hassia’s case (supra) widened the horizons still further in as much as apart from the Corporation as the ‘State’, even the Co-operative Society registered under the Societies Registration Act was held to be ‘the State’ for the purpose of Article 12 of the Constitution. The relevant portion of the judgment reads:

“The respondents contended that the college is run by a society which is not a corporation created by a statute but is a society registered under the Jammu & Kashmir Societies Registration Act, 1898, and it is, therefore, not an ‘authority’ within the meaning of Article 12 of the Constitution and no writ petition can be maintained against it, nor can any complaint be made that it has acted arbitrarily in the matter of granting admissions and violated the equality clause of the Constitution.

Obviously, the Society cannot be equated with the Government of India or the Government of any State nor can it be said to be a local authority and therefore, it must come within the expression ‘other authorities’ if it is to fall within the definition of ‘State’. That immediately leads us to a consideration of the question as to what are the ‘other authorities’ contemplated in the definition of ‘State’ in Article 12….

We are clearly of the view that where a Corporation is an instrumentality or agency of the Government, it must be held to be an ‘authority’ within the meaning of Article 12 and hence subject to the same basic obligation to obey the Fundamental Rights as the Government.”

Bhanwarlal v. Rajhasthan State Road Transport

In Bhanwarlal v. Rajhasthan State Road Transport, (1984), the court considered whether state road corporation is an authority under Article 12. The court analysed the functioning of the corporation and concluded that,

  • “The Corporation is incorporated and is regulated by the Road Transport Corporation Act, 1950. The management vests in the Board of Directors with Managing Director to assist the Board and Chairman as the Apex Authority. The State Government can appoint the Director and the Chairman etc., of the Board.
  • Rules made under Road Transport Corporation Act provides for the representation both of the Central Government and of the State Government on the Board in such proportion as may be agreed to by both the Governments and of appointment by each Government of its own representatives thereto.
  • The resignation of office by the Chairman or a Director are to be given to the State Government.
  • The State Government can remove from Office the Chairman or Director of the Board. Section 14 contemplates that the Managing Director, Chief Accounts Officer and Financial Adviser are to be appointed by the State Government. The Advisory Council is to be appointed by the State Government under Section 17.
  • The capital of the Corporation is to be provided by the Government according to Section 23 and Chapter IV of it contains the provisions for the finance and funds and, the scheme of Sections 23, 24, 25, 26 as well as 27 and other provisions of this Chapter shows that the entire finance, accounts and audit are to be done by the State Government.
  • The budget is approved by the State Government under Section 32 and, the accounts’ audit is to be done as prescribed by the State Government in consultation with the Comptroller and Auditor-General of India.
  • According to Section 35, the Corporation is required to submit returns and accounts to the State Government of its property and activities and, a report is also to be submitted every year. Annual report submitted to the State Government is required to be placed before the Legislature of the State.
  • State Government has got powers to make rules under Section 44 of the Road Transport Corporations Act, for various matters mentioned therein. Even the regulations of the Corporation require the previous sanction of the State Government under Section 45. State Government is empowered under Section 46 to impose penalty for breach of rules made under Section 44.

A bare perusal of the above provision and scheme of the above Act, clearly goes to show that the Corporation is a ‘State” within the meaning of Article 12 of the Constitution of India as the entire establishment having been made, functioning, control supersession regulations, liquidation, finance and accounts are to be done by the State Government. The whole or substantial part of the share capital is held by the Central Government and/or the State Government, as the case may be. The Corporation is public sector undertaking established by the State and the State Government exercises full and effective control over it.”